Jack In The Box 2012 Annual Report Download - page 49

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closure costs, which are included in impairment and other charges, net in the accompanying consolidated statements of earnings, consist of future lease
commitments, net of anticipated sublease rentals, and expected ancillary costs.
Self-insurance — We are self-insured for a portion of our workers’ compensation, general liability, employee medical and dental, and automotive claims. We
utilize a paid-loss plan for our workers’ compensation, general liability and automotive programs, which have predetermined loss limits per occurrence and in
the aggregate. We establish our insurance liability (undiscounted) and reserves using independent actuarial estimates of expected losses for determining reported
claims and as the basis for estimating claims incurred but not reported.
Advertising costs — We administer marketing funds which include contractual contributions. In fiscal years 2012, 2011 and 2010 the marketing funds were
approximately 5% and 1% of sales at all franchise and company-operated Jack in the Box and Qdoba restaurants, respectively. We record contributions from
franchisees as a liability included in accrued liabilities in the accompanying consolidated balance sheets until such funds are expended. The contributions to
the marketing funds are designated for advertising and we act as an agent for the franchisees with regard to these contributions. Therefore, we do not reflect
franchisee contributions to the funds in our consolidated statements of earnings or cash flows.
Production costs of commercials, programming and other marketing activities are charged to the marketing funds when the advertising is first used for its
intended purpose, and the costs of advertising are charged to operations as incurred. Total contributions and other marketing expenses, are included in selling,
general, and administrative expenses in the accompanying consolidated statements of earnings. The following table provides a summary of advertising costs
related to company-operated restaurants in each year ( in thousands):
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Jack in the Box
$49,757
$63,094
$83,971
Qdoba
9,970
7,433
5,860
Total
$59,727
$70,527
$89,831
Share-based compensation — We account for our share-based compensation as required by the FASB authoritative guidance on stock compensation , which
generally requires, among other things, that all employee share-based compensation be measured using a fair value method and that the resulting compensation
cost be recognized in the financial statements. Compensation expense for our share-based compensation awards is generally recognized on a straight-line basis
over the shorter of the vesting period or the period from the date of grant to the date the employee becomes eligible to retire.
Income taxes — Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, as well as tax loss and credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. We recognize interest and, when applicable, penalties related to unrecognized tax benefits as a component of our income tax provision.
Authoritative guidance issued by the FASB prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is
recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Refer to Note 10, Income Taxes, for
additional information.
Derivative instruments — From time to time, we use utility derivatives to reduce the risk of price fluctuations related to natural gas. We also use interest rate
swap agreements to manage interest rate exposure. We do not speculate using derivative instruments. We purchase derivative instruments only for the purpose
of risk management.
All derivatives are recognized on the consolidated balance sheets at fair value based upon quoted market prices. Changes in the fair values of derivatives are
recorded in earnings or other comprehensive income, based on whether the instrument is designated as a hedge transaction. Gains or losses on derivative
instruments reported in other comprehensive income (“OCI”) are classified to earnings in the period the hedged item affects earnings. If the underlying hedge
transaction ceases to exist, any associated amounts reported in other comprehensive income are reclassified to earnings at that time. Any ineffectiveness is
recognized in earnings in the current period. Refer to Note 5, Fair Value Measurements, and Note 6, Derivative Instruments, for additional information
regarding our derivative instruments.
Contingencies — We recognize liabilities for contingencies when we have an exposure that indicates it is probable that an asset has been impaired or that a
liability has been incurred and the amount of impairment or loss can be reasonably estimated. Our ultimate legal and financial liability with respect to such
matters cannot be estimated with certainty and requires the use of estimates. When the reasonable estimate is a range, the recorded loss will be the best estimate
within the range. We record legal settlement
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